A settlement agreement generally contains the following terms:
- An agreed termination date;
- Payment of salary and provision of ongoing benefits to the agreed termination date;
- Payment in lieu of notice (unless the employee is working their contractual or statutory notice);
- Payment of any accrued holidays to the termination date;
- Termination Payment ;
- A reference;
- Confidentiality provisions in respect of the negotiations leading up to the agreement and the terms of the agreement itself;
- Return of any company property;
- Reiteration of any post termination restrictions that are set out in the contract of employment or a provision for new restrictions;
- Contribution towards an employee’s legal fees; and
- A full waiver by the employee of any specific employment related claims or rights.
It is usual for an agreement not to settle an employee’s accrued pension rights, as these have accrued in the past and cannot retrospectively be removed by an employer outside the rules of the pension fund. In addition there is usually a clause dealing with any future claim for personal injury against an employer. Personal injury claims are either excluded from the agreement completely or the employee only signs away the right to pursue claims for injuries of which they are already aware.
In terms of the termination payment, this may be offered on a tax free basis. Tax issues are complicated and will vary from case to case. Generally speaking up to £30,000 can be paid free of tax provided it is paid as compensation for loss of employment and does not contain any contractual entitlement such as notice pay, holiday pay or salary.
For more information please contact our expert employment solicitors based in Leeds and Harrogate on 0113 322 9222.